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need note on all Padhuka's - Students Handbook on Strategic Cost Management & Performance Evaluation - CA Final 4. Cost of Prediction Error for actual
need note on all
Padhuka's - Students Handbook on Strategic Cost Management & Performance Evaluation - CA Final 4. Cost of Prediction Error for actual demand of 11,000 units Particulars Correct Decision OT Work Variable Costs ? 12 3,000 units = 736,000 Fixed Costs Total Costs or 3,000 additional units 336,000 Cost of Prediction Error = 37,500 - 30,000 toys > 2,000 hours Own Production Lower Variable Costs per unit Hence, the minimum excess machine hour capacity needed to justify the manufacturing of any portion of the Toy Order is 2,000 Machine Hours Alternative Method: Savings due to own production = 57.50 - 50.00 = 7.50 per unit, whereas specific Mould Costs 2,25,000 = 2,25,000. Hence, minimum own production required to justify recovery of Mould Cost = = 30,000 toys. If 37.50 the Company does not have adequate spare capacity to produce atleast 30,000 toys (i.e. equivalent to 2,000 machine hours), it should sub-contract the entire Toy Order 7. Loss due to improper demand prediction and negotiation (A) Profits that should have been earned by negotiating properly at 4,80,000 Cans 4,80,000 Cans Capacity Used for Cans = = 16,000 machine hours. Since balance machine capacity is 2,000 hours, i.e. 30 Cans per hour Indifference Point between sub-contracting and own production, the Company should have earned the following profit - 9.33Step by Step Solution
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